The Jiji and Mulembwe hydropower project will finance construction of two hydropower stations of combined 48 megawatts capacity and will provide Burundians with affordable, clean, reliable, and sustainable energy.Read More »

In June, Kenya set a new African record. At $ 2 billion, the country’s sovereign bond debut was four times oversubscribed. Only one month later, Senegal broke this high. Zambia and Cote d’Ivoire... Show More + have been similarly successful in what some call an African bond bonanza.Interest rates in traditional markets are so low that investors are going after sub-Saharan debt for its high return rates averaging between 5.5 and 7.5 percent. But they are also attracted by the continent’s promising growth rates, its economic stability, rising exports, and growing private investment.This is a good thing.To sustain growth and fight poverty, Africa needs to ramp up investment, particularly to generate more electricity given that 600 million Africans have no access to power. The infrastructure investment gap, estimated to be around $75 billion per year, can be narrowed by, among other measures, raising debt.This is why bond markets, but also bilateral lending, have become so popular. To be clear, raising debt on the international markets and increasing spending are standard tools for any finance minister. But this should not be a race for issuing more and bigger bonds and shouldn’t result in out-of-control spending.Not long ago, over 30 African countries benefited from a major international debt relief program. Now a handful of countries are building up debt again, at a fast pace, often at risky terms and to unsustainable levels. Their debt could reach pre-relief times within a decade.It matters a lot how these resources are being used. Some countries have started increasing their borrowing and spending with an eye on long-term gains by addressing their infrastructure gap and deploying a mix of economic incentives and investments into Africa’s vast human potential. But in others spending remains short-sighted and too few dividends are used to fight poverty.There are three things for leaders to keep in mind if they want their borrowing and fiscal management to pay off:First, be patient. It is rarely the quick fix that goes the farthest. So don’t get tempted by political cycles and the lure of electoral wins. Development is an endurance exercise with incremental improvements. When done well, they are more likely to stay, benefiting today’s and tomorrow’s generation. But populist measures like bumping up civil service salaries or subsidizing fuel can quickly become unsustainable. Fuel subsidies help the rich more than the poor, and some African countries spend up to 5% of their GDP on them, leaving little for smarter investments. Related to this is a second moral of spending. Do what is best for most people, , not just a few. Prevent your elites and growing middle class, those who often benefit most from growth and development, from turning into a special interests group that blocks reforms. . They will always be eager to protect their privileges, and you will have to spend time and effort to build a climate that promotes broad buy-in for difficult reforms. If you wait too long, resistance to more competitiveness, open markets, and revenue collection will grow while opportunities go untapped.Third, act multi-dimensionally. Investing in new power generation without reforming your ineffective power company will bring little change. Similarly, building schools without improving the quality of teaching can be wasteful. In other words, go for the development “package,” the broad approach. Infrastructure alone won’t end poverty. The World Bank had to learn this lesson too. While we believed too much in bricks and mortar in our early days, we now understand that bringing together funding, technical expertise, and tested knowledge, go much further.Together with our clients, we now focus on finding investment solutions that benefit multiple countries in multiple sectors. Just a few months ago, we pooled our own and private funding sources, for which we provided an investment guarantee, to support Mauritania to develop its off-shore gas deposits. The gas will be converted into electricity and then in part be sold to Senegal and Mali, providing both cheaper and cleaner sources of electricity for those countries. Millions of people will benefit.The outlook is good. Africa has better institutions today than ever, is more resilient to shocks, and in many places guided by prudent macroeconomic and fiscal policies. Twenty-five years ago 60 percent of Africans were extremely poor. Now it’s 48 percent. But the decline has been slower than in other regions and inequality is rising in many countries.This is why leaders need to finance the next stage of their countries’ development. And they can do so without endangering hard-won development gains. But fiscal discipline remains critical to secure long-term growth and finance successful pro-poor policies. It is the virtue that can help protecting today’s successes for the next generation. If Africa spends smartly and designs the right development package it can continue the continent’s path of success. Show Less -

Policy makers under pressure can get preoccupied with the fixation of the moment. For the eurozone, that idée fixe has been “the firewall”. How big is big enough? Who contributes and how?Now that the eurozone... Show More + finance ministers have exhausted themselves with a multilayered package of hundreds of billions of euros, the debate will go global at this week’s spring meetings of the International Monetary Fund and the World Bank. The next preoccupation will be how many more hundreds of billions of euros should be pledged to the IMF. It will be Firewall II: the Sequel.I beg to differ. Not with firewalls exactly, but with the preoccupation.The survival of the eurozone now depends on Italy and Spain. They are the countries that are too big to fail – or to rescue. Extraordinary action by the European Central Bank has lowered the interest rates that Italy and Spain pay on their debt, but not solved their problems.In one sense, the much-badgered Germans are right. The fates of Italy and Spain depend on the steps their governments take to cut spending, reduce debt, strengthen banks and make structural reforms. Firewalls offer reassurance to markets, but the governments’ action, their political support and the ECB’s liquidity will be decisive.The firewall preoccupation distracts from the fundamental issue: what should the EU do to help Italy and Spain retain political support for reforms? Structural steps are painful for any government. They are devilishly difficult without growth. Reforms can disrupt an economy for a time as investment, business and workers adjust.In Italy, Mario Monti, prime minister, has begun an exemplary combination of fiscal consolidation and reforms of pensions and labour markets. But unemployment is rising. Will Italy sustain the politics of reform without supportive EU policies? Mariano Rajoy, Spain’s prime minister, has set a similar course, but even modest concessions on the path to reduce the deficit, combined with 23 per cent unemployment and challenges in elections and on the street, have prompted a rise in Spain’s borrowing cost. The economics of adjustment and the politics of reform would be easier if Italy and Spain could be boosted by European growth.Yet as one European told me, economics is a branch of moral philosophy in Germany, so do not expect expansionary demand policies to trump rectitude, discipline and belt-tightening. There is, however, a supply-side growth alternative: strengthening investment, the single market, and the EU itself.Instead of quarrelling over firewalls, Europeans should add just a fraction – say €10bn – to the capital of the European Investment Bank. Under current conditions, the EIB may actually have to reduce lending. Instead, the EIB could use more capital to borrow and then invest to support structural reforms, showing Spaniards and Italians that their sacrifices will draw productive investments. The EIB is now even led by a talented German, Werner Hoyer, from the governing coalition. President José Manuel Barroso of the European Commission should also demand disbursement of the billions of euros of structural and cohesion funds that sit on its books while poorer parts of Europe go wanting; find the logjam and break it.The single market – the very fibre of EU integration – could also come to the rescue. Although goods move freely in the EU, the service sector in many countries – including Germany – could open up more. Labour movement is also far more limited than in a true single market. Whether the cause is language, habits, matching jobs with workers, or cost of relocation, now is the moment to overcome the hurdles and advance the true unification of the EU. Show people who want to work that the EU wants them, too.The combination of fiscal and structural reforms, EIB and EC investments, the opening of service markets, and easing the movement of workers will pay dividends. Mr Monti has travelled to Beijing to show China’s sovereign investment fund that Italy is becoming a good place to invest. That makes more sense than lobbying the Chinese to add to firewalls, especially if the EU itself invests and makes the single market more attractive.Firewalls have their purpose. But this debate risks becoming a distraction. Europeans and their partners need to keep their eye on the strategic Schwerpunkt: helping Italy and Spain with growth and the politics of fiscal consolidation and structural reforms that will boost business, competition and jobs. The ECB has done its work. The other institutions of the EU need a burst of activism on investment and strengthening the single market to preserve and secure their union.The writer is World Bank president. Show Less -